Monday, September 14, 2015

FYI: 11th Cir Reverses Dismissal of City of Miami's FHA "Predatory Lending Discrimination" Claims Against Three Banks

The U.S. Court of Appeals for Eleventh Circuit recently held that a municipality has standing to bring disparate impact discrimination claims under the federal Fair Housing Act to recover for allegedly increased police, fire and other costs supposedly caused by the defendant banks' so-called "predatory lending" practices.


A copy of the opinion is available at:


The City brought three separate cases against three different banks, alleging that they violated the Fair Housing Act, 42 U.S.C. § 3601 et seq. (FHA), by supposedly targeting Black and Latino customers for so-called "predatory" loans that were allegedly riskier and had higher fees and costs than those offered to similarly situated white borrowers. The subject loans included those with higher interest rates, "subprime loans, interest only loans, balloon payment loans, loans with prepayment penalties, negative amortization loans, no documentation loans and adjustable rate mortgages with teaser rates."


The complaint alleged that by steering minority applicants to such "predatory" loans, the defendant banks caused minority-owned properties throughout the City to be prematurely foreclosed, thus depriving the City of tax revenue, and also forcing it to spend more on police, fire, trash and other municipal services in order to address the resulting urban blight. The complaint also contained a common law claim for unjust enrichment under Florida law.


The three cases were consolidated before the same district judge, who dismissed the FHA claims with prejudice because:  a) the City lacked statutory standing under the FHA because it was not within the statute's "zone of interests" sought to be protected;  b) the City had not adequately pled that the defendant banks' conduct proximately caused the City's damages; and  c) the statute of limitations barred the FHA claims and the continuing violation doctrine exception did not apply. The City appealed.


On appeal, the Eleventh Circuit quickly concluded that the City had constitutional standing to pursue its claims under the FHA, reasoning that "under controlling Supreme Court precedent, the 'zone of interests' for the Fair Housing Act extends as broadly as permitted under Article III of the Constitution, and therefore encompasses the City's claim."


The Eleventh Circuit explained that the concept of constitutional standing arises from the "case-or-controversy" requirement in Article III of the Constitution, and that in order to establish "constitutional standing at the pleading stage, the plaintiff must plausibly allege: (1) an injury in fact that is concrete, particularized, and actual or imminent; (2) 'a causal connection between the injury and the conduct complained of,' such that the injury is 'fairly traceable to the challenged action of the defendant'; and (3) that a favorable judicial decision will 'likely' redress the injury."


According to the Eleventh Circuit, the Supreme Court precedent also requires that the "'line of causation' between the alleged conduct and the injury must not be 'too attenuated,' [and] [a]t the pleading stage, 'general factual allegations of injury resulting from the defendant's conduct may suffice' to demonstrate standing."


The Court rejected the defendant banks' argument that City's harm was not fairly traceable to the banks' conduct, because other factors such as the declining housing market broke the causal chain, reasoning, that, although "[a]t a subsequent stage in the litigation it may well be difficult to prove which foreclosures resulted from discriminatory lending, how much tax revenue was actually lost as a result of the Bank's behavior… at this early stage, the claim is plausible and sufficient … [and] [t]he City has said enough to establish Article III standing." 


The Eleventh Circuit then turned to the district's court's conclusion that the City lacked "statutory standing," explaining that the Supreme Court recently called it a misleading label because "[t]he proper inquiry is whether the plaintiff 'has a cause of action under the statute.' … But that inquiry isn't a matter of standing, because 'the absence of a valid … cause of action does not implicate subject-matter jurisdiction, i.e., the court's statutory of constitutional power to adjudicate the case…Instead, it is 'a straightforward question of statutory interpretation."


The Court explained further that '[i]n general, a statutory cause of action 'extends only to those plaintiffs whose interests 'fall within the zone of interests protected by the law invoked,' [and that] [t]he Supreme Court has instructed us that this test 'applies to all statutorily created causes of action,' but its application is not uniform: 'certain statutes … protect a more-than-usually 'expansive range of interests.'"


The defendant banks argued that the City was not an "aggrieved person" as defined by the FHA  and, thus, did not fall within the statute's zone of interests. The City argued that under the controlling case law, it fell within the zone of interests because statutory standing is a broad as the Constitution's Article III permits.


After carefully reviewing the Supreme Court's landmark FHA cases and its own precedent, noting that "[t]he scope and role of the zone of interests analysis in the FHA context is a difficult issue, and one that has sharply divided the courts that have considered it," the Eleventh Circuit concluded that "[u]ltimately we disagree with the district court, and hold that the phrase 'aggrieved person' in the FHA extends as broadly as is constitutionally permissible under Article III."


The Eleventh Circuit also concluded that the City adequately alleged proximate cause, and "[b]ecause the district court imposed too stringent a zone of interests test and wrongly applied the proximate cause analysis, [the district court] erred in dismissing the City's federal claims with prejudice and in denying the City's motion for leave to amend on grounds of futility."


The Court then addressed the district court's ruling that the statute of limitations barred the FHA claims. and that the continuing violation doctrine exception did not apply.


As you may recall, the FHA requires that claims be filed "not later than 2 years after the occurrence or the termination of an alleged discriminatory housing practice."  In addition, a claim under the FHA based on a discriminatory loan "begins to run from the date that the loan closes."


The City failed to allege that any of the alleged predatory loans closed within the limitations period, which was December 13, 2011 to December 13, 2013. On appeal, the City argued that this defect could easily be cured if it were granted leave to amend.


The district court never addressed whether the City's proposed amended complaint was sufficient, because it concluded that the City still fell outside the FHA's zone of interests and thus lacked statutory standing. The Appellate Court disagreed, concluding that "[b]ecause the district court erred both as to the zone of interests and proximate cause, we are obliged to remand the cause of action in the first instance to determine whether or not the City could remedy any statute of limitations deficiency."


In order to provide guidance on remand, the Eleventh Circuit addressed the district court's holding that the continuing violation doctrine did not apply "because the complaint did not identify a singular and uniform practice of continuing conduct."


As you may recall, the continuing violation doctrine allows a plaintiff to sue based on the continued enforcement of a discriminatory policy as long as one prohibited act of discrimination occurs during the limitations period.


Relying on the Supreme Court's decision in Havens, the leading case "on the continuing violation doctrine in the FHA context," the Eleventh Circuit found that City "has alleged 'not just one incident … but an unlawful practice that continues into the limitations period." The Court reasoned that "[t]he fact that the burdensome terms have not remained perfectly uniform does not make the allegedly unlawful practice any less 'continuing.' The various instances of discriminatory lending comprise the practice, which continues into the limitations period. At least at the pleading stage, this is enough to plausibly invoke the continuing violation doctrine."


Having found that the City was within the FHA's zone of interests, and that it sufficiently alleged that the defendant banks' conduct was the proximate cause of its injury, the Court concluded that the district court abused its discretion by refusing to allow the City to file its amended complaint on the grounds that it would be futile. 


However, the Eleventh Circuit affirmed the dismissal of the state law unjust enrichment claims, because the benefits allegedly conferred on the defendant banks were insufficiently direct to state a claim under Florida law.





Ralph T. Wutscher
Maurice Wutscher LLP
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